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Wednesday, March 31, 2010

Introduction to Final Accounts

After the completion of preparing Trial Balance, Final Accounts are prepared to ascertain the net result i.e. profit or loss and the financial position of the business. In other words, a business can find out the profit or loss made by the business through the final accounts. They are prepared at the close of the accounting period with the help of trial balance. It is the final step of accounting circle which includes:

Trading Account.

Profit and Loss Account.

Balance Sheet.

In case of manufacturing concern, a separate manufacturing account must be prepared before preparing trading account. Final accounts are prepared mainly for following two objectives.

To ascertain the net result i.e. profit or loss made by the business firm during the accounting period.

To know the financial position of the business i.e. assets and liabilities of the business as on given date.

The net result of the business operation is disclosed by the profit and loss account and the financial position of the business is shown by the balance sheet.